High Flyers and the Grounding of Equality

by Samuel Bollier

Private and corporate jet sales are taking off, reflecting an increase in the extreme concentration of wealth in the United States and around the world.

Worlwide sales of private jets have more than doubled since 2003, to $19.4 billion in 2007. The number of jets sold increased 28 percent between 2006 and 2007 alone. Sales of these jets increased 18 percent between 2005 and 2006 alone. And corporate jet ownership has increased by about 70 percent since the early 1990s.

Universal Jet Aviation, a Florida-based company, claims that business has increased by 50 percent since 9/11. Bookajet, the United Kingdom's oldest private jet company, reported a 40 percent growth in business between the summer of 2005 and the summer of 2006. There is a four-year wait to buy Boeing's largest business jet, which is the size of its 737 airliner.

Private jets are in such high demand right now that, thanks to long lines to buy a new jet, used planes often sell for more than the price at which they were bought. New planes bought in 2006 now sell on the used market for an average of 22 percent higher than their purchase price, according to Vref, the standard price guide for the private jet industry.

Not only are private jets in higher demand, but they're also becoming more luxurious and expensive. Boeing's largest business jet costs $67 million. Other companies sell airplanes that are nearly as costly: Airbus's priciest plane goes for $55 million, while Gulfstream Aerospace's G550 sells for $46 million.

The private jet market is truly a global one, with the main manufacturers reporting that half or more of sales are coming from outside of North America.

Demand is particularly booming in the Persian Gulf, where oil-rich sheiks are spurring annualized sales growth of 10 percent to 15 percent in the region. In Saudi Arabia, private individuals own 160 jets, and this number is expected to double in the next five years. Special terminals for private jets are being built in Bahrain, Dubai, Qatar and Abu Dhabi.

Private and corporate jets give the super-rich not just ease and comfort, convenience and luxury, but a way to distinguish themselves from everyone else. Private jet marketing explicitly emphasizes the elite status and conspicuousness of this consumption.

With concern about excessive wealth concentration on the rise, it is logical to focus attention on private and corporate jets, and perhaps a luxury jet tax will capture some politician's fancy.

But for now, it turns out that the private and corporate jet industry -- and its high flyers - are embroiled in a series of controversies, over use of shareholder money, plane safety rules, the functioning of the U.S. air control system and the environment. The narrow base of private and corporate jet users puts them on the defensive in these policy disputes, but their wealth and the private and corporate jet industry's concentrated lobbyinng and political power make them able antagonists in Washington, D.C. policy disputes.

Manufacturers

The private jet industry is dominated by Cessna Aircraft, a Wichita, Kansas-based business owned by corporate conglomerate Textron. Cessna sells more private jets than any other company. Textron bought Cessna from General Dynamics (the current owner of Gulfstream Aerospace) in 1992.

Cessna delivered 387 business jets, 80 turboprops and 807 piston aircraft in 2007, flying past its 2006 performance of 307 business jets, 67 turboprops and 865 piston aircraft. Just over half of the company's sales were outside the United States. Cessna says it plans to deliver 470 business jets in 2008. Its 2007 revenues were $5 billion, up from $4.2 billion in 2006. The company's backlog grew to an all-time high of $12.6 billion.

Bombardier Aerospace, a Canadian firm based in Montreal, is the maker of the Learjet, and another major player in the private jet industry. The company reported 232 deliveries of private jets in 2007, as well as 452 orders. It says that "interest for business jets in major emerging markets, such as Russia and Asia, has grown significantly, shifting demand away from the United States, which now accounts for approximately 30 percent of the group's new orders."

Gulfstream Aerospace sells some of the most expensive jets on the market. Gulfstream sold 71 of its $46 million G550s planes in 2006. General Dynamics has owned the company since 2001.

General Dynamics says in its annual financial filing for 2007 that, "For the past several years, the Aerospace group has seen a steady increase in demand for its products around the world, particularly in Europe, the Middle East, India and the Asia-Pacific region. Notably, while experiencing record growth in North American demand, international orders surpassed North American orders in 2007 for the first time in the group's history." Gulfstream scored sales of more than $4 billion in 2007, up more than 20 percent from 2006, and nearly 50 percent from 2005.

Unbounded Opulence

For the super-rich, Learjets and Citation Sovereigns are child's toys. The new standard of wealth is the personal jumbo jet. A Boeing 787, which will be able to carry anywhere from 210 to 330 passengers when it becomes available in May 2008 as a commercial jet, will sell for upward of $150 million. Increasingly, the super-rich are buying such planes and converting them into luxury planes for themselves, their family and their entourage. About the same number of Boeing 757s and 767s have had the same treatment. Google co-founders Larry Page and Sergey Brin are among the few who own a private 767. And in June 2007 an unnamed buyer purchased an Airbus A380, the largest jumbo jet in existence and able to fit 840 passengers, for use as a private jet.

Daniel Gross, writing for the online magazine Slate, notes that "private aircraft have played a role in virtually every recent story of corporate entitlement and corruption." For example, Adelphia's shareholders were effectively forced to pay $6,000 per year for a jet to deliver a Christmas tree to the home of company founder John Rigas' daughter. In 2001, a second tree was delivered, also by jet, when the first one was deemed to be too short. Rigas also took the company plane to Kenya on a safari. Tyco executives regularly flew around the country in the company's 13 planes. While Martha Stewart's private jet was refueling in Texas, her friend Mariana Pasternak overheard her talking about ImClone stock, a conversation that would prove incredibly damaging during Stewart's trial.

Private aircraft are the apotheosis of the growing inequality in America. The rich and poor are separated by a growing income gap, but, perhaps more importantly, by a widening cultural gap as well. Such a rift is reinforced by luxury items such as private jets, which physically separate the super-rich from the merely well-to-do. People who fly on commercial airplanes have to go through rigorous security, take off their shoes, wait through flight delays and sit next to complete strangers. Purchasing private jets allows the super-rich to escape these downsides of commercial travel, as security regulations are often minimal.

The Smartest Guys in the Room, a book by Bethany McLean about the Enron scandal, recounts the telling story of how, as Enron's stock was beginning to crash and questions had arisen as to the putative value of Enron, Ken Lay was sitting in his office, intently examining fabric swatches for the company's new plane.

The Company Plane

Corporate executives routinely use company jets for personal trips. Equilar, an independent research firm, found that companies whose members had personally used the corporate planes had billed shareholders 45 percent more in 2005 than they had in 2004. Former Time Warner CEO Richard Parsons flew twice a year in company planes to his 20-acre vineyard in Tuscany, and the shareholders footed the bill. The same phenomenon occurs when Bank of America and General Electric chairmen fly between their homes.

In 2002, 140 CEOs in the United States each racked up $50,000 in private jet expenses on company planes, according to a USA Today analysis of Securities and Exchange Commission corporate filings. Thirty-three more had personal flight costs totaling over $100,000. By 2005, these figures had risen to 250 CEOs over $50,000 and 100 over $100,000.

Citing security concerns, companies such as GE, Motorola, Time Warner and News Corp., actually require their CEOs to fly on the corporate jet, as opposed to charter planes or commercial airlines. This safety argument extends even to smaller companies such as Rollins, a pest-control business, which paid its executive's taxes for his $116,988 of travel expenses on the corporate jet.

Free use of the company jet for personal purposes is a taxable benefit. To make sure their leaders are not hit with unpleasant tax bills, many large corporations are "grossing up" their executives' salaries - adding an extra increment to cover the additional taxes they must pay.

Spiraling Risks

In July 2007, the Federal Aviation Association (FAA) proposed new safety rules that had been heavily lobbied for by the General Aviation Manufacturers Association (GAMA), a group representing small plane manufacturers such as Cessna Aircraft and Bombardier Aerospace. The new rules, if approved, will allow private jets to operate under much less stringent safety standards than those which commercial airliners must obey. Flammability rules would be waived, allowing the use of previously taboo fabrics such as mohair and suede, and interior doors would be allowed on planes, provided that they remain ajar during takeoff and landing.

According to a GAMA statement on the matter, "The existing regulatory framework for transport category airplanes was written with the commercial airplane cabin in mind and specific regulations to address the unique features of private aircraft had to be issued on a case-by-case basis." These "unique features" often include otherwise illegal items such as spiral staircases, bathing facilities and large bedrooms. Acquiring these exemptions is often a long and expensive process. "Through regulations that address these interior items, the agency will be able to assure the appropriate level of safety while reducing the bureaucratic burden on the [FAA]," reads the GAMA statement.

This relaxation of safety rules was proposed despite the fact that small planes tend to crash at a greater rate than commercial airliners. Senator Paul Wellstone of Minnesota, golfer Payne Stewart and the executives of In-N-Out Burger have all died in recent years in small plane crashes. The pilots of small airplane companies are often not as well trained, and frequently have to fly into small, poorly lit airports. The Transportation Security Administration (TSA) provides guidelines for operating planes that weigh less than 12,500 pounds, but these guidelines are not mandatory.

"Not Fanciful" Security Threat

Unlike commercial airlines, most charter jet companies don't require their passengers to submit to bag checks, background checks or body searches. All one has to do is show identification and pay for the trip. At several airports, such as San Carlos and Hayward in California, it's possible to walk onto the private airline tarmac through open gates. Some airports check fliers' names against the federal government's no-fly list, but many more do not. Many small planes have poorly built locks, and can be started by someone with a minimal amount of mechanical knowledge. And while many small airports shut their control towers down at night, they leave the runways open.

Small planes could conceivably be used by terrorists. Although such planes may not be capable of creating explosions as large as those caused by the jumbo jets hijacked on 9/11, a small plane loaded with a "dirty bomb," or with chemical or biological weapons, could still cause catastrophic damage if crashed into a heavily populated area. In June 2006, Lord Carlile, the UK government's terrorism watchdog, wrote a 66-page report on terrorism law, some of which dealt with aviation. "The risk of hijacking of [private jets] is not fanciful," he said. "It is possible to purchase, from reputable international companies, piloted flying hours in sophisticated executive jets capable of high-speed travel from continent to continent." Fractional ownership systems, in which an individual can rent a number of hours flying in a private aircraft, and use them at short notice, was deemed a "subject of some concern" by Lord Carlile.

Already, attacks have been carried out in small jets. In January 2002, a suicidal 15-year-old crashed a Cessna jet into an office building in Tampa, Florida. Three months later, a Swiss man killed three and injured dozens more when he intentionally flew a small plane into the tallest building in Milan, Italy.

Lobbying on the Plane

Since 1974, it has been illegal for corporations to give money directly to political candidates. However, companies are permitted to fly politicians on their jets for a very low fee - usually, the equivalent amount to what the person would have to pay for a similar trip on a first-class commercial jet. This amount does not even come close to covering the cost of operating the plane - so the corporation is, in effect, subsidizing the politician's travel costs. The alternative to flying on a corporate jet would be to hire a charter plane, which is often much more expensive.

Many of the 2008 presidential candidates flew on these corporate jets instead of chartering planes. John Edwards paid $430,000 during the first half of 2007 to use a jet owned by trial lawyer Fred Baron. Rudy Giuliani paid $175,000 in the first half of the year for jets leased by Elliott Asset Management, owned by a hedge fund executive and Giuliani supporter. Mitt Romney took flights on jets leased from eBay and Oracle CEO Larry Ellison. Hillary Clinton and Barack Obama, in contrast, have vowed not to fly on corporate jets during their presidential campaigns. They charter their own jets instead.

Meredith McGehee, policy director of the nonprofit group Campaign Legal Center, describes the current system of allowing corporations to lease politicians their jets as a way of gaining "access and influence."

"Much of the game in Washington is simply having the time and ability to get your issue up on the radar screen," McGehee says. "[Corporate jets] provide the giver an opportunity for access and influence, and that's incredibly valuable."

Corporations agree with this interpretation of corporate flights as a means to gain access, albeit in thinly veiled language: In 2006 Barr Pharmaceuticals vice-president Carol A. Cox told BusinessWeek that a flight "presents the company with an opportunity to discuss the complex issues related to health care ... in an environment where the complexities of these issues can be more fully addressed in a longer and uninterrupted dialogue."

Among politicians, the use of corporate jets is widespread. According to PoliticalMoneyLine, a nonpartisan campaign finance research firm, 192 political candidates have made approximately 2,300 flights on these planes since 2001. Recently retired Senator Trent Lott, R-Mississippi, made the most such flights, at 116 - an average of about one corporate plane every two weeks.

"In a time when all of us are facing the prospects of standing in long lines, taking off our shoes, stripping off our belts and otherwise going through the hassles of travel," McGehee says, "for a politician who has a compact schedule, it's a great benefit and it certainly builds up that feeling of gratitude with a member of Congress."

Big Wig Subsidies

Although both commercial airliners and private planes use the FAA's air traffic control system, large commercial airlines pay a disproportionately high share of fees to support air traffic control. A Boeing 757-200 flying from New York City to Washington, D.C., would pay about $1,384 in taxes, according to Smart Skies, an advocacy group for the airlines of the Air Transport Association (ATA). In contrast, a Gulfstream jet flying the same route would pay as little as $46, up to $255. "General aviation [private and corporate jet travel], on the whole, is paying about 3 percent of the taxes that go into the trust fund and drive about 16 percent of the air traffic control cost," says an FAA official who asked not to be named. "The end result is that two very cost-comparable flights can pay very different amounts into the system. It's not fair for commercial passengers to be subsidizing private aviation."

Dan Hubbard, spokesperson for the National Business Aviation Association, a group representing over 8,000 companies - including GM, ExxonMobil and NetJets, a plane-chartering company - that fly corporate and private jets, comes to a different conclusion. "Most economists the world over agree that the costs of systems are driven by the commercial airlines," he says. "What you find is we [corporate jets] are only about 4 percent of the traffic at the major U.S. hub airports. Most people would agree that a 737 arriving in Chicago O'Hare airport imposes a different kind of cost on the system than a turboprop flying over Kansas at 9 o'clock at night."

However, as the FAA official points out, air traffic that doesn't use the large metropolitan hubs still imposes many costs associated with it that the FAA must shoulder. And a study released by the U.S. Department of Transportation in March 2008 found that private and corporate jets account for about a fifth of all air traffic in major airports during peak hours. For example, private and corporate jets accounted for 18 percent to 23 percent of air traffic over the Cleveland airport during peak times of the day.

The Bush administration has pushed for a revised tax structure that would require small plane operators to pay significantly more in taxes. Senators Jay Rockefeller IV, D-West Virginia, and Trent Lott, R-Mississippi, both on the Commerce Committee, are the co-sponsors of the bill.

But the plan has run into stiff opposition from the corporate jet lobby, which has contributed substantially more money to politicians than have the commercial airlines. For example, the Aircraft Owners and Pilots Association, a group representing private pilots, contributed $940,100 to federal candidates during the 2006 election cycle. This figure is larger than the combined donations to federal candidates in 2006 given by American Airlines ($276,200), Continental Airlines ($236,280), Southwest Airlines ($135,700), United Airlines ($123,250), Delta Airlines ($72,500) and US Airways ($40,500). Textron, the owner of Cessna Aircraft, donated more - $403,970 in the 2006 election cycle - than any of the major airlines.

The private jet industry's lobbying expenditures are much greater as well: the Aircraft Owners and Pilots Association spent $11 million on lobbying in 2005 and 2006, whereas the ATA, which represents the major airlines, spent just $6 million during the same period.

The National Business Aviation Association is staunchly opposed to the bill that would hike taxes on private and corporate jets. However, the association is quick to point to its support for general air traffic control modernization and support for two Congressional modernization proposals that would impose a 65 percent tax increase on aviation fuel taxes.

CO2 Nightmare

Small planes are by far the most polluting method of transportation, in terms of the amount of carbon dioxide released per capita. Analysts working for the Helium Report, an online guide on luxury vacations, calculated that an hour of flying in a private jet burns as much fuel as one would burn in an entire year of driving. The Gulfstream IV, for example, emits between 83,000 to 90,000 pounds of carbon dioxide on just one cross-country round trip. The average person in the United States emits just 50,000 pounds of carbon dioxide total per year. And, because the emissions from planes occur so high in the atmosphere, they contribute to global warming at two to four times the rate of emissions closer to Earth, such as those from cars. "From a carbon footprint point of view, it's really as bad as it gets," says Chris Miller, director of Greenpeace USA's climate campaign. "Even in terms of other forms of air transport, a private jet is just much, much less efficient."

Although commercial airliners use more fuel than private jets, they also seat dozens more people, causing their per-capita fuel usage to be less than that of private jets.

Robert Baugniet, senior manager of corporate communications for Gulfstream Aerospace calls this line of argument "fallacious."

"So if you go in a bus and pump out a whole bunch of CO2 into the environment, but because you've got 40 passengers on board it's ok?" he queries. "Let me put it this way, if you put the total amount of carbon emitted by the aerospace industry, it pales into nothing compared to automobiles, railways, truck transportation, bus transportation. About less than 2 percent of carbon emissions come from aerospace. And within that 2 percent, a fraction of that comes from business aviation."

Not only do private jets emit tons of carbon dioxide high into the atmosphere, they also release smog-forming chemicals. The story here is similar to that for carbon. Commercial jets have the same problem, but private jets are worse because there are more emissions per passenger. On the runway, nitrogen oxides and volatile organic compounds contribute to the formation of ground-level ozone, or smog, which causes breathing and lung problems. When the plane is in the air, this exhaust is even more damaging to the environment. The compounds released in the upper troposphere - from water vapor to carbon dioxide to particulates to unburned hydrocarbons - form contrails, the white lines seen in the sky after a plane has passed. These contrails play a key role in forming cirrus clouds that trap heat rays radiating toward space while blocking incoming sunshine. This causes the weather to become both cloudier and warmer, scientists believe. Finally, the toxic chemicals used to de-ice airplanes during cold weather often end up in waterways.

The recent creation of Very Light Jets (VLJs) as a new category of aircraft, in addition to the development of commercially available VLJs, has the potential to greatly increase the number of airplanes flying the skies. In September 2006, the first VLJs were approved by the FAA: the Eclipse 500 and the Citation Mustang. The Eclipse, a small, six-seat plane selling for $1.5 million, already has a list of 2,500 of people lined up to buy it. Currently, the wait for one is 11.5 years.

Because these types of planes are fairly cheap to fly - operating costs per mile are about half that of traditional private jets - it's possible that an "air taxi" industry will develop that would shuttle people among the more than 5,000 local airports in the United States, many of which are under-utilized. By one standard, VLJs may democratize the skies somewhat, by allowing the rich to gain access to items previously owned only by the super-rich.

But although the planes use less fuel than existing private jets, more miles could easily offset efficiency benefits. If the planes are bought and flown in large numbers, they could have a significant negative impact on carbon dioxide emissions.

The FAA is also concerned about the additional costs to the air traffic control system that these new planes will bring. Says Hank Price, FAA spokesman, "These planes are going to be putting more pressure on the system and more pressure on us to make sure the system is being paid for in a fair manner."

Samuel Bollier is a Multinational Monitor intern.